The Next Decade Of Wealth

14th October 2015 Madelaine Ollivier, Wealth-X

In the coming decade, it will be increasingly important to segment and understand the wealthy at a more detailed level.

The creation of wealth

In the past decade, the number of wealthy with 'old money' or inherited wealth has steadily decreased in developed, mostly Western, nations. The roots of this transition date back to the middle of the last century, but recently the trend has been accelerated by greater life expectancy and lower interest rates. This has meant the wealthy require more of their wealth to see them through retirement – with less to then pass on.

In countries that have emerged and thrived over the past decade, principally in Asia, a different phenomenon is occurring. Here, most of the wealth is new. We will soon see it being passed on to the next generation for the first time – 'old new money'.

There are several important differences between these kinds of wealth transfers and inheritance as we know it in the West. The role of women in society, the importance of religion, cultural and traditional family values including primogeniture, will all have an impact on each wealthy individual’s approach to inheritance.

We also expect sizeable wealth transfer to take place prior to the death of the wealthy individual, with a greater emphasis placed on ensuring the comfort and affluence of children and surrounding family. In total, $4.1 trillion will be transferred globally by UNHW individuals over the next decade, including $1.2 trillion in liquid assets.

Among the global UHNW population today, 18% inherited their wealth, 63% were self-made and the rest have a combination of both. Over the next decade, however, the share of those whose wealth is inherited will grow by more than 2%.

The behaviour of wealth

The world’s newly wealthy will rapidly become more discerning luxury consumers. China is often cited as a market that has surprised observers with the speed of its move from conspicuous consumption to careful, tasteful purchasing. However, the country is far from unique – we believe all other emerging markets will follow this fast trajectory, fuelled by four factors:

Newly wealthy consumers are travelling overseas more regularly and more widely, where they are exposed to global luxury styles and tastes. They quickly spot that most established wealthy have a wide repertoire of brands.

Many newly wealthy consumers, or their children, are educated overseas. As such, their exposure to – largely western European or North American – established wealth and luxury purchasing behaviour is seen first-hand among their peers.

Media is now fully internationalised and universally available, ensuring the rapid spread and consumption of trends and styles.

Much has been made of the different behaviours and consumption patterns of those new to wealth compared to those with established wealth – observations in increasingly disparaging terms. As such, the newly minted are even more quickly aware of the need to learn and behave like individuals with established wealth.

Localisation: a decade of specialisation

The past decade has been characterised by internationalisation, yet the coming decade may see a slowing of this trend. Wealth creation will no longer follow a linear trend and increasingly certain nations will have specialisations. In the coming decade, it will be increasingly important to segment and understand the wealthy at a more detailed level – most likely defined by cities within countries. It will also be increasingly important to prepare for the nonlinear development of economies and wealth creation.

Frontiers: pushing extremities will generate new spending and opportunities

The wealthy have always been among any early adopter group. We expect new frontiers to become the focus of both luxury consumption and of investment. Globalisation and connectivity has meant that exclusivity and novelty are now much harder to find. As a result, extreme frontiers such as space travel or underwater holidays will become more popular. In finance, investments in established stock markets will become increasingly safer plays, with asset management aimed at wealth preservation. Instead, to grow wealth, investments will need to be increasingly focused in riskier markets and newer sectors.

This article first appeared on Luxury Briefing as part of Wealth-X’s monthly contribution to the publication. Wealth-X are regular contributors to Family Business United and this article has been reproduced with their permission. Visit Wealth-X for more insights.